Great Wall Motors' new sports utility vehicle Pi4 VV7X debuts at the 17th International Automobile Industry Exhibition in Shanghai in April. Photo: VCG
It was not long ago when scores of domestic carmakers rush to the thriving segments of sports utility vehicles (SUVs) and new-energy vehicles (NEVs) and grab a substantial share, but that might have come to an end.
Financial reports of 15 domestic companies for the first half of the year highlighted increasingly competitive markets for both segments and some companies' revenues and profits have been seriously plagued by the competition.
BYD Auto Co, one of the largest NEV makers in the country, reported a year-on-year 23.75 percent decline in its net profit for the first half of the year to a little more than 1.7 billion yuan ($259.9 million), while revenue fell 0.2 percent to 45 billion yuan, according to the company's financial report released on August 29.
In the report, BYD attributed the sharp fall in net profit to "a certain degree of decline" in NEV sales during the period, due mainly to adjustments to subsidies for the NEV sector, though the company remained the top NEV seller in the country, with a total of 19.5 percent of the domestic market.
Data from the China Association of Automobile Manufacturers (CAAM) showed that BYD sold 35,500 NEVs in the first half of the year, down 27 percent from last year.
BYD is hardly alone. Another domestic carmaker that has been dragged down by slow NEV sales is Chongqing-based Lifan Group.
Lifan's listed unit reported on August 23 that net profit for the first half of the year fell more than 32 percent year-on-year, after sales of NEVs plunged nearly 60 percent to a mere 1,624 units.
JAC Motors headquartered in Hefei, capital of East China's Anhui Province, also citied slow growth in NEV sales for a year-on-year 40 percent decline in net revenue, specifically pointed out the phasing out of subsidies for NEV sector.
Apart from NEV, the SUV segment, which has been a highlight of the Chinese auto market for the past few years, also dragged down several domestic carmakers in the first half of 2017.
Great Wall Motors saw its net profit plunging nearly 50 percent year-on-year in the first half of the year. The company said in its financial report released on August 25 that rising pressure and costs in the SUV segment contributed largely to the fall in net profit.
After a year-on-year 9 percent fall in June, Great Wall Motors' SUV sales in the first half grew 4.2 percent year-on-year, significantly slower than over 20 percent growth seen in the same period last year.
Great Wall is the nation's top SUV seller with its widely popular Haval models.
According to an estimate by Car Prophet, a car industry media outlet, SUV sales account for nearly 95 percent of Great Wall's overall sales.
JAC Motors was also severely hit by sharp declines in SUV sales in the first half. The company, which has been rumored to purchase Fiat Chrysler, saw a year-on-year 50 percent drop in its SUV sales to 67,200 units during the period.
Zotye Auto also saw a year-on-year 18 percent decline in its SUV sales for the first half of the year, though the company said its net profit nearly quintupled in the first half to 222 million yuan, according to financial reports it released on August 21.
However, analysts say the surge in net profit was due mainly to a purchase of Yongkang Zotye Auto Co's full stake and the merger of their financial reports.
It was rising competition that these companies were troubled in the SUV and NEV segments rather than overall declines in those segments that led to sales plunge, analysts said, pointing to robust sales in both areas.
Despite slow growth in passenger car sales in the first half, SUV and NEV sales remained relatively strong. In the first half of the year, passenger car sales grew by 1.61 percent year-on-year to a little more than 11.25 million units, but SUV and NEV sales increased 15.7 percent and 14.4 percent on a year-on-year basis, respectively, according to data released by the CAAM in July.
"The trend for SUV and NEV hasn't changed. The two segments has been and will continue to be the main engine for overall car sales in the Chinese automobile market, at least for the foreseeable future," Zeng Zhiling, an analyst at Shanghai-based consultancy LMC Automotives, told the Global Times on Tuesday.
Zeng said SUV is still widely popular among consumers and a highlight in the country's auto market. "It's not like the Chinese people all of sudden don't like SUVs anymore; On the contrary, I think more and more people are into SUVs," Zeng noted.
As to NEV, Zeng said that is the future. "No one can change that. Even if you don't like NEVs, the government will make you do so because of environmental concerns," he added.
So why then these companies saw SUV and NEV as a problem for their revenue and net profits?
"It was constantly rising competition from not only other domestic brands but some foreign-demotic joint ventures," said Wu Shuocheng, a Shanghai-based independent industry expert.
Wu told the Global Times on Tuesday that the SUV market is not what it used to be, "where domestic car companies can just jump in with a low-end, inexpensive model and could still succeed."
He said drivers have become very picky with all the available models, including better and more affordable models from domestic-foreign joint ventures such as Beijing Mercedes-Benz and BMW Brilliance.
In the NEV sector, competition is probably even tougher as almost all of the carmakers, both foreign and domestic, have invested heavily in the segment, according to Wu.
Analysts also added that the government's decision to phase out substantial subsidy to NEV development and purchases might have also contributed to the fall of some carmakers' revenues and profits.
However, Wu said, "You can't say we will stop our endeavors in SUV or NEV just because competition is getting worse. These two areas are not to be missed by any company."
Many Chinese analysts appear to agree that there will be continued growth in SUV and in what they describe as the future of the car industry - NEV.
Companies are also competing to move ahead of each other in these two areas.
Zhejiang Geely said in its mid-year report that the company has reduced the proportion of sedans in its sales to 55 percent in the first half of 2017 from 69 percent in 2016.
"[We will] launch more all-new SUV models later this year and better grasp the fast-rising demand for SUV in China," the company said in the report on August 16.
Even JAC Motors, which was hit by SUV declines, said the company will focus on more niche areas of the segment.
Almost all the financial reports from the 15 domestic brands explicitly mentioned their future strategies in the SUV and NEV sectors.
"All have to move in this direction, but some will gain and some will lose," Wu said.